Qualified Intermediaries News, Issue Number: 2018-13 (Oct. 17, 2018)
In a recent edition of “Qualified Intermediaries News,” IRS issued a reminder that entities seeking Qualified Intermediary (QI) (including Qualified Derivatives Dealer (QDD)), Withholding Foreign Partnership (WP), or Withholding Foreign Trust (WT) status, that wish to have an agreement in effect in 2018, must submit their applications through the Qualified Intermediary Application Account Management System (QAAMS) no later than Nov. 16, 2018 to allow sufficient time for processing by year end.
Background on withholding from foreign entities. In general, nonresident aliens and foreign corporations are subject to a U.S. withholding tax on certain items of income that they receive from U.S. sources that are not effectively connected with a U.S. trade or business. (Code Sec. 1441 to Code Sec. 1446; Code Sec. 1471 through Code Sec. 1474)
Background on the QI regime. The QI system was designed to simplify U.S. tax withholding and reporting obligations for payments of income made to an account holder through one or more foreign intermediaries. A QI is an eligible entity that enters into a QI agreement with IRS to assume certain responsibilities related to compliance with the U.S. tax withholding and reporting regime.
Background on WPs and WTs. WP and WT agreements are intended to simplify withholding and reporting obligations for certain payments made to partners of a WP and beneficiaries and owners of a WT. These agreements are tailored to meet the unique situations of WPs and WTs in their roles as foreign intermediaries.
In general, if a WP or WT submits its application for WP or WT status on or before Mar. 31, its agreement will have an effective date as of Jan. 1 of that year. If the application is submitted on or after Apr. 1, the effective date of the agreement is Jan. 1 of the calendar year following the year in which the application was submitted. (Rev Proc 2014-47)
Background on QDDs. A QDD is a QI that is an eligible entity under Reg. § 1.1441-1(e)(6)(ii), that agrees to meet the requirements in Reg. § 1.1441-1(e)(6)(i) and the QI agreement.
Deadline approaching. In the Oct. 17, 2018 edition of IRS’s Qualified Intermediaries News, IRS urged entities seeking to have a QI, WP, or WT agreement in effect in 2018 to ensure that their applications are submitted by Nov. 16, 2018.
The effective date for new applicants is the date as provided in Rev Proc 2017-15, 2017 IRB 437, for a QI, and in Rev Proc 2017-15, 2017 IRB 437, for a WP or WT.
Rev Proc 2017-15, 2017 IRB 437, Sec. 6 provides a QI agreement, Sec. 2.22 of which states that if a prospective QI applies for QI status after March 31 of a calendar year and has not received a “reportable payment” before the date it applies for QI status and is approved, it will have a QI agreement with an effective date of Jan. 1 of that year. If a prospective QI applies for QI status after March 31 and has received a reportable payment before the date it applies and is approved, it will have a QI agreement with an effective date of the first of the month in which its QI application is approved and the prospective QI is issued a QI-EIN.
Rev Proc 2017-15, 2017 IRB 437, Sec. 6 provides a WP/WT agreement, Sec. 12.01(a) of which states that if an entity submits an application to be a WP (or WT) after March 31 and does not receive any “reportable amounts” between Jan. 1 of the calendar year in which the WP application (or WT application) is submitted and the date of approval, the entity has a WP agreement (or WT agreement) with an effective date of the date it is issued a WP-EIN (or WT-EIN). (Other entities applying for WP status after March 31 that are approved during the calendar year will have an effective date of Jan. 1 of the following year.)
References: For withholdable payments to foreign entities, see Federal Tax Coordinator 2d ¶ O-13070 et seq.; United States Tax Reporter ¶ 14,714 et seq.